On this site we’ve previously looked at a range of traditional funding options such as venture capital and private equity. But if they aren’t right for your business, could you find the money you need from a more unexpected source?
The tech giants seem to have an interest in every business sector and small business funding is no exception. PayPal threw its hat into the ring in 2014 with the launch of its Working Capital business, which offers cash advances of up to £100,000 against a business’ future earnings. Since then it has provided £625m of cash advances to over 30,000 UK small businesses (Source PayPal, June 2018).
Approvals for the online applications are based on the company’s PayPal sales history and account behaviour meaning that no credit checks are run against the business. Repayments are taken as a fixed percentage of the company’s future PayPal sales with no interest charged.
Funded by PayPal
Zak Taylor is among the entrepreneurs who have taken advantage of the offering. During a wet and dark walk along a Devon beach with his dog Izzy back in 2013, he came up with the idea of opening an online dog products store.
“I had been using a dog toy called Chuckit! which involves launching a ball great distances for Izzy to chase. She loved it,” recalls Taylor, now owner of Active Hound. “It was a US toy and I noted that almost nobody sold it here. So, I decided to begin a business by importing and selling Chuckit! - first via eBay and then through our own website. I then added some other brands in ranges such as body warmers, food and dog beds.”
The offering proved popular with dog lovers and, within a short period, the business was turning over £100,000.
“PayPal got in touch wanting us to use them as our sole payments processor for both payments through PayPal and cards,” Taylor explains. “I agreed and found that the combination of using PayPal, new brands and better marketing meant our turnover soon quadrupled.”
After launching Working Capital, PayPal came knocking on Taylor’s door again. Through the service he secured £60,000 worth of funding upfront to boost marketing and stock levels. “It made a huge difference to the expansion of the business, including employing our first member of staff. It’s been really successful for us,” he says.
Better than banks?
Taylor says he will continue using the Working Capital service into the future having “given up” on other sources, such as bank loans. “Banks are just not interested in sole traders. They don’t want to talk to you,” he says. “I believe PayPal is the go to place for small businesses. Perhaps more medium sized firms might find the £100,000 limit too small and if we decide to do our own manufacturing then crowdfunding could be an additional option for us to raise more funds. But at present PayPal is a great solution for us.”
PayPal charges a single fixed fee, which is based on the level of the cash advance and repayment percentage. But there are terms and conditions businesses need to be aware of - including the need to make a minimum level of repayments every 90 days, regardless of sales volumes.
Other technology companies are also eyeing the business funding market and are developing or ramping up lending options, such as Amazon Lending and Shopify Capital.
As with PayPal they are using their intimate knowledge of their customers, their brand appeal and technology expertise to offer SMEs a new and exciting funding alternative. Expect more to follow.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.